Tuesday, October 5, 2010

The rental market

If you thought the market for Victoria rentals was tight, think again.

It's not. If landlords need to rent a unit, the price is likely being reduced. It's not uncommon to find listings on Craigslist and UsedVictoria with lines like: "available immediately" and "flexible move in dates" meaning the place is empty now and if you'll only agree to lease it for a year, we'll let you move in slowly this month until you vacate your present place.

It's a buyers' market in the rental pool and if you're a renter searching for a new place to call home for the next year or so, you should be negotiating that rent down. Heck, if you're a renter not currently under lease, you can likely negotiate your rent down under threat of moving on.

We rented our current house in July of this year. I had coffee with our landlord the other day and she asked me how we were enjoying the house. I told it her it has great character but it's tired and could really use an empty month of maintenance work to get it into better shape. She tried to strike a deal with me to get me to do the work for "free" if she paid for materials. I laughed out loud... damn near spat my coffee on my pants.

I said to her, "Why would I want to do that? My time is valuable and the labour part of the work will be your most costly expense. Are you offering to drop my rent?"

She said, "You're already getting a great deal. You're paying less than the previous tenants were."

I said, "This is your only rental property isn't it?"

"Yes."

"So you're probably not aware what's happening in the rental market so much then right?"

"I always look at what's online whenever I need to rent the place and make sure I'm in the right ballpark. That was back in July, it's only October now."

"Things are coming down," I said.

"Maybe."

"We look fairly frequently and I need to tell you I'm tempted to start looking to see if we can find the same kind of place for less money or find more place for the same money."

"Really?" she asked. "I don't know how that's possible, I'm not making anything on the house each month off you. You only pay the hydro bill. I pay property tax, city water and garbage. You've got it pretty good."

"Seriously. There's lots out there and people are dropping their prices. We're tempted."

"Are you giving me notice then?"

"Not yet. But please don't confuse your costs on the house with what the rental rates should be. If we do decide to move, I won't make any decisions without talking to you first. If you want us to stay, we may be able to come to an agreement. But I won't sign a lease."

We started talking about other things. It was a friendly conversation and I think I caught her off guard. I like my landlord, we haven't had to deal with any real issues with the house but we never planned to stay in it too long and told her so when we agreed to move in. We negotiated on the rent and she took seven per cent off her original asking rent even though we refused to sign a one year lease. We verbally agreed to 6 months at $1400 per month and we'll respect that verbal agreement.

I have people close to me who are snowbirds. Each winter they head to warmth and usually try to rent their house out for four months or so. They recognize that most people don't want a short term furnished rental so they usually price it about 60 per cent of what a long term unfurnished place would rent for and be very picky with their tenants. This year, after two months of searching and nearing four weeks to departure they've given up hope. I got a call over the weekend offering us to move in, rent free, just pay the utilities and make sure the house is looked after. Four or 5 months of rent-free living will add over $5,600 to our down payment fund. We're tempted.

49 comments:

Dave said...

How much are typical utilities (I have never owned a home or rented anything other than an apartment)?

Seems like the only extra costs would be the cost of moving in now and out in five months, plus the risk regarding the rental market when you move out.

Assuming the house size and neighbourhood etc are all the same to you.

If you can handle the hassle and you believe you won't pay more when you have to leave then it seems like a no-brainer.

Dave3

HouseHuntVictoria said...

Dave, cost of moving in and out would be 2 or 3 days of my time. My wife and I are frugal (no surprise their eh?) and haven't amassed a collection of items that only get noticed when you have to move them. Our last move was paid for, and the 2 pros did it in under 10 hours (packing, loading, unloading and unpacking). We have a big truck in the family and would do this move on our own. I suspect it will cost me $100 bucks for gas etc, and a couple cases of beer & pizza plus owing a friend for the same thing to help lift the heavy stuff.

There is definite risk to moving. We've talked about it at length and haven't made up our minds. It's extremely difficult to put a dollar value to it, but my wife made a pretty good analogy the other night when she said, "if we don't go, it's like buying a $5600 insurance policy that only covers you for 6 months."

Bubble 'n Fizz(le) said...

Wow, talk about rubbing your landlady's nose in it. I never realized you were such a rude dude. Thought that was my department.

DavidL said...

@ Dave wrote: How much are typical utilities (I have never owned a home or rented anything other than an apartment)?

My utilities (late 1970's house) work out to the following monthly average:
$150 - Electricity (including heat and hot water)
$60 - Water (includes a charges for sewer)

I expect that this is lower than many homes due to energy efficient lighting, programmable thermostats, low water use, etc. Homes using natural gas or an oil furnace can expect to pay more for heating. Older homes (single pane windows, poor insulation) leak copious amounts of heat ... I've known people in Victoria spend more than $3000/year just for heating oil.

Of course there are the hassles and expenses for HHV of moving phone/cable/internet/mail ...

omc said...

I wouldn't do it. You end up with a must move date at the end. Like it or not, this will sway you to either settle for something imperfect, or away from a house that meets your needs. That is of course saying that you are looking to buy after that.

Unless something drastic happens to the market, I can't see us making it much further before we have to buy.

My kids hate the thought of moving too. Yours might be more adventurous.

Just Jack said...

It'll be an experience that you and the Mrs will never forget. It may draw you both together for some other event later in your life, were you really need to pull together.

Just call it an adventure. Be nomads.

Ryan said...

Unless something drastic happens to the market, I can't see us making it much further before we have to buy.

I'm confused, how could you ever "have" to buy? The whole point of this post was that the rental market is loosening up. I had no trouble finding a place the last time I moved even though I only had a week to look. That was over a year ago, it will only have gotten easier since then.

I think what it comes down to for HHV is, how much do you care about saving money? Personally, I don't care that much. I'll haggle when I'm looking for a new place, but I wouldn't move just for a coule months of free rent. I like where I am now, and I intend to stay here for years. That means a lot more to me than $5000. Other than when I update my net worth spreadsheet, I wouldn't even notice the money at all.

Alexandrahere said...

HHV...Gee...re your comments to your landlady.

It seems to me that you you verbally agreed to stay in her home for 6months. That would put you until Jan 1. Your friends are going away for the winter. So you are thinking of living there for how long? 2 months before you are looking for another place to live.

Dig deep into that soul of yours. Wasn't that conversation with her just a little bit in a bullying nature?

You knew she did her best to accommodate you when you moved in. And she is even trying now to please you more if need be. And now after just two months you are kind of worrying her for really no reason. You aren't going to move. So what was the conversation "really" about.

How others would see this is: She has something you want. A house. You are more educated currently on the rental scene as she is as you are a renter and she is a novice landlady.

Anyway always think about how you treat others....things change, you might one day want a reference. Your word is your word....and there is nothing.....nothing more important to your integrity than that one thing.

DavidL said...

Changing the subject a little ... here's the latest "spin" from Re/Max:

Real estate picture improving: Re/Max
"The outlook for the residential housing market has vastly improved over the past three months."

I find the following quote particularly interesting:

"If anything demonstrates the underlying health of the national housing picture, it’s the surge in sales of luxury properties this year," said Michael Polzler, Re/Max's executive vice-president for Ontario and Atlantic Canada.

Perhaps an alternate analysis would be that luxury home owners are hard-pressed to make their mortgage payments and have been obliged to slash prices and sell their homes to remain solvent?

omc said...

@ Ryan

Yes you never have to buy, but our patience is wearing thin. We are about 3 years into the wait and are going to have to move on. We are not into moving to another rental.

Will we getter better value than 3 years ago; much better. When we first started to look it was a complete feeding frenzy. What ever was on the market, was what ever you would have to settle with. Things were selling for way over assessment, and you had to ignore the obvious deficiencies, because the dummies were ignoring them. we would have most likely had to settle on a turkey of a house that needed a lot repairs, probably in not too good of a location.

We are also more defined in what we want.

I know that it is a pretty big risk, better be ready to live there for 10 years. The best we could hope for would be a 90s style correction, and would be susceptible to market crashes in the next decade.

DavidL said...

@HHV wrote: I told it her it has great character but it's tired and could really use an empty month of maintenance work to get it into better shape.

It doesn't sound like you are totally thrilled about about your current accommodation. Alexandrahere has pointed out that you are obliged to fulfill you 6-month verbal agreement - so only you can decide if it is worth moving for the couple of months of savings.

On the other hand, if you do want to stay with your current accommodation - you may be able to provide a creative solution to your current landlady. You could vacate the property for a month (no additional cost to you, as you can stay at the "snowbirds" place) so that she could get some maintenance work done. Thoughts?

omc said...

The truth on that story from CBC . The realtors lowered the bar by $500k in Van and Toronto as to what they call an upper end home. I wonder why they say an increase in upper end sales?

HouseHuntVictoria said...

@DavidL, we could, but she likely wouldn't pay for the kinds of things I'd like to see happen: new windows (ours are currently wooden, single pane), a non-clawfoot tub bathroom and new flooring on the upper level (at least redoing the current hardwood to repair the cracks etc).

@AlexandraHere, we wouldn't leave/stop paying rent before the verbal agreement is up. The snowbirders I know are gone mid-November, return end of April. We'd have 4 months of rent free living in a place substantially better than our current home. During this period we'd be able to take our time finding another place to rent. If one comes along before May, we may lose a month or two of rent free living. No big deal.

We may even buy. We've saved a ton of money the past 3 years and are getting much closer to being comfortable with $500K home prices because we're not looking at $400K mortgages anymore. Depending on what happens to the market over the next 6 months, we may pull the trigger.

I don't really speak like I write. I'm not a great writer, so much of the tone that's written here is "lost" when it comes to how I'd speak to someone in person. I was extremely polite during the conversation, it wasn't like I'd intentionally brought it up, she asked, I answered and gave her my reasons why I wasn't keen on staying in her home long term or working for free to fix it the way we'd like it. I try to be honest at all times and prefer not to sugar coat things.

For us, ultimately, it comes down to doing what's right financially. If the landlady's upset by our decisions, that's a consequence of being a landlord. We're great tenants. We treat the house with a great deal of respect. I'd prefer her to fix up the home than drop the rent, but even if she did, we wouldn't commit to a long term lease because we want the flexibility of not being in one. I'd even be happy to let the work happen to the home while we stay here.

@omc, I understand the feeling completely. Next spring's market will be the deciding factor - if it's falling still then, we may find something we really like for a price we're comfortable with. For us, we don't want to spend a bunch of money on someone's problem house. I'm seeing much better quality for prices we can work with. If the quality is there in the spring, we may pull the trigger, as long as we can take our time with the purchase.

Ryan said...

We are not into moving to another rental.

Why, though? You can get a way nicer place if you rent. I rented a house that backed onto Portage Inlet and was absolutely gorgeous, with huge windows looking out over the yard toward the water and the most amazing bathroom I've ever seen--it had both a jacuzzi tub and a two-person shower. Rent was $2100 a month, the assessed value of the house was somewhere around $820,000.

Obviously, buying that house is completely out of the question. In fact, the mortgage payment alone on a $500,000 house (with a 20% down payment) would be more than $2100, never mind taxes and maintenance and all the other costs of owning. You can probably get a decent house in a nice neighbourhood for that money, but nothing that would make you go "wow!"

What is so horrible about renting that you're willing to live in a significantly worse home to avoid it? There are some things I don't like about renting, sure, but nothing annoys me nearly enough that I would consider moving into the kind of place I could afford to buy. And there's a lot to be said for when your washing machine breaks and you just phone up the landlord and tell him to deal with it.

Mark said...

I bet these guys wish they had rented.....

http://calgary.ctv.ca/servlet/an/local/CTVNews/20101004/cgy_mortgage_foreclosure_101004/20101004/?hub=CalgaryHome

ou may think that only American families are losing their homes to foreclosure, but it's happening here in Alberta too.

Falling property values are forcing a Carseland family out on the street.

When the Folviks took out a $288,000 mortgage in 2007 their home was worth $300,000.

Now the three year term is up and they have to pay off the balance which is still $288,000. The problem is because of the intervening economic downturn their home now worth only $240,000, and the banks won't lend a penny more on a new mortgage.

That leaves the Folviks $48,000 short and that means even though they've never missed a payment, the Folviks are losing their home.

Heather Folvik says we're "not deadbeats, we did everything right, and we stand to lose it all".

OUCH! and Calgary has "real" jobs that pay well....Vic, not so much

omc said...

I am not sure why more people aren't up in arms over that fake re/max report today. They massaged the data by moving the level down for what they consider to be high end house (from $1.5mill to $1mill in Van and Toronto for example). They release it with a little release on the front that says that this shows that rich people are buying houses and hope the journalists don't actually read the report.

Voila misinformation realtor style. I heard the Q didn't read the report ad neither did CBC. I wonder how many other local MSM will regurgitate these lies.

Marko said...
This comment has been removed by the author.
omc said...

I think it's the real estate industry that causes the backlash against realtors. Remember VREB's unsupported predictions for the fall season?

Leo S said...

That report by REMAX is a joke. I can't believe people go out and hire their agents at 7%+4%.....yes...believe it or not, some agents are still able to attain that amount.

The problem is that realtors are very good at persuading people they are worth the money, and there are no stats out there to disprove it. The argument is that you pay 7% commission but that realtor will get you 10% more money.
There is literally only one semi-scientific study out there that compared effectiveness of private vs realtor sales. I've never seen anything to compare discount vs full price realtors.

Of course the full price realtors let no opportunity go to waste to tell you they will get you a better price than a 1% realtor or selling privately. No evidence, but no counter evidence either.

Too bad that data isn't publicly available. Would be so easy to compare the different approaches if we could get at this data.

Marko said...

The Re/Max report is such a joke...

"The Re/Max report found there hasn't been a big influx of listings, while demand has normalized after a very hot period in late 2009 and early this year."

Like, what? Demand has normalized???

mrmike said...

Install an air tight wood stove or have your landlord install one.

We bought a brand new one last year through pacific energy in druncan (they build them there)and we have to keep the windows open all night it gets so hot...This is in the winter months!

We bought the place in 99 and came with nat-gas fireplaces, 1 up and 1 down and was costing us a small fortune to run.

Since having this high efficiency wood stove installed,the heating costs for my 2000 sq.ft home is $300 annually.

We save even more by hanging our laundry on an indoor drying rack placed beside the stove. We have an electric cloths dryer, but seldom use it these days.

Energy is expensive, even after going out with a wrench and shutting off my gas meter, they still charge me $40 per month for the privilege!

And get this, as we are behind a couple months on our terasan gas bill (since we dont really care)...they send us a final disconnection notice. WTF! please go ahead!

Another thing, since my house has full unobstructed southern exposure...I'm really considering solar hot water.

Again, energy is expensive...and it's only gonna get worse!

DavidL said...

Garth Turner eloquently "tore a strip" off the Re/Max report on his blog today. It makes for an entertaining read:
http://www.greaterfool.ca/2010/10/05/kiss-this/

@ omc wrote: I think it's the real estate industry that causes the backlash against realtors. Remember VREB's unsupported predictions for the fall season?

After reading the tripe being currently served up by various real estate boards - I have to agree with you. At least VREB avoided bold predictions about an immediate market recovery in October, and preferred a vague:

"... it is always important to view changes over a period of several months time in determining what trends are developing"
http://vreb.org/mls_statistics/current_statistics.html

HammerTown said...

Looking through some recent A News reports and came across this one:

Len Barrie's mortgage on his Bear Mountain Mansion has been inactive since February.

* 13.5 Million dollar mortgage
* Interest on Loan = $1,400 per day

Watch the A News report here.

HammerTown said...
This comment has been removed by the author.
HammerTown said...

RE: Rental Market.

We have been renting a 1500 sq ft, ground level, 2 bedroom suite for the past two years. Our landlords are very nice and very quiet. At $1100 a month (all inclusive) we are able to live comfortably and save the rest for a future family home.

Who wouldn't want to own vs rent but do we really *need* to own a our own home to be happy at this moment? No sir. Is there any shame in renting as some visitors to this site suggest? Absolutely not. In fact I'm glad we said "no thank you" to an approved $600,000 mortgage last year and continued to save our money, renting, now that I can see where this market is heading.

When it comes to house maintenance, repair costs and the stress of a now volatile market, it makes me feel like taking a Leonardo walk.

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patriotz said...

When the Folviks took out a $288,000 mortgage in 2007 their home was worth $300,000.

Note that the story does not say "when they bought the house in 2007".

Put 2+2 together - they had bought years ago and were "extracting equity".

Another thing - the banks will renew a CMHC insured mortgage even if the house is underwater, because they are guaranteed to get their money back.They were dealing with "Accredited Home Loans" which made non-insured loans - aka "subprime".

Watch this report to get the full story. These people were idiots.

CTV new reprort

Mark said...

Real estate downturn could last 8 years: IMF

By Steve Goldstein, MarketWatch

WASHINGTON (MarketWatch) — The prospects in the global real estate sector are “dismal,” with a downturn that could last eight years, the International Monetary Fund warned Wednesday.

http://www.marketwatch.com/story/real-estate-slump-could-last-8-years-imf-2010-10-06?siteid=bnbh

The IMF sees problems both in the “bust” countries, such as the United States, Spain and Ireland, and the “rebound” economies, such as the Asia-Pacific region, most Scandinavian countries, and Canada.

Canada??? You mean it's not different here? Who knew....

Mark said...

Blogger patriotz said...

When the Folviks took out a $288,000 mortgage in 2007 their home was worth $300,000.

Look like it may have been an interest only loan. Either way, yes they are idiots BUT I don't think the mortgage broker in the interview was being honest.....I think there are a lot more of these type loans out there than the figure he quoted.

Looks to me like the biggest idiots out there in this are CMHC which equals the Govt, which equal you and I as we will be left paying this off when CMHC gets in trouble paying the banks back the difference between the purchase price and new appraised price of homes like these when people start getting into trouble.

What a mess!

Just Jack said...

Thanks Patriotz for the CTV clip

Accredited Mortgage, Exceed Mortgage, Citibank, etc. were and are active in the Victoria market. Most do not have branch offices so they rely entirely on brokers. And Brokers do a lot of work in this town, and play by a different set of rules than the big banks.

Its not uncommon for one of the big banks to turn down an applicant for a mortgage because of an unacceptably high debt ratio, only to have a broker get the applicant approved at a substantially higher mortgage from US banks like Accredited, etc.

In the case of the bank loans officer, they are accountable to the bank manager and ultimately to the bank depositors and shareholders as the loan stays with the bank. In the case of the broker, they take a fee or commission and move the mortgage onto to a subprime lender. No accountability and no responsibility on their shoulders.

In my opinion, if the originators of the loans were held accountable then you would not have seen the "creative" lending procedures that created supersized mortgage loans, far in excess of what a Canadian bank could lend. The brokers even do their own "appraisals" on the properties. If the couple doesn't have the needed income then the loan is secured by just the equity in the home. Since the brokers input the data - bingo the house is "appraised out".

And it has been happening a lot in Victoria as exhibited by the staggering price to median income ratio which I believe is slightly less than Vancouver at 9.3 times. You don't get to these high ratios without "creative" lending.

The affect of all this crazy lending only becomes noticeable when the market corrects or stagnates. Until then, all the errors and corruption are hidden in rising prices.

With our 20 year low in sales, only a small percent of the mortgage and home equity loans have to go under to push us into a US style foreclosure market. So it scares me when the brokers say that US lenders like accredited accounted for only 7 percent of the high ratio market because that's thousand of properties in Victoria. And that's more than enough to sink us.

Leo S said...

Not all of those 7 percent would end up in foreclosure though.

These particular two made the mistake of either an interest only loan and/or extracting equity in a declining market. The ones that paid off their mortgages diligently might be fine at renewal time.

Marko said...

1760 Broadmead down to $569,000 this morning...

Seems like a decent deal is getting warmer to me....

Any thoughts?

patriotz said...

The ones that paid off their mortgages diligently might be fine at renewal time.

Uh huh. Given that the great majority of CMHC-eligible FTBs go for the 5/35 (or previously 0/40), I think "diligent" paydowns by the subprime crowd is expecting a bit much.

omc said...

That house on Broadmead? What is a regular basement suite house worth in that area? About the same. That house is just a 1000sqft 40s shack with an under height (6' something) moldy smelling basement. Nothing is actually fixed up, the kitchen cabinets are even just the old ones painted. Still way overpriced. Lots of other ones are much better deals.

Marko said...

Really, I thought the basement suite was nice when I saw 1 month ago. As I remember it had fisher paykel fridge that goes for about $2200 + taxes. It isn't a gut job obviously, but I wouldn't say they cheaped out.

What to you consider to be better deals out there?

DavidL said...

Just Jack ... interesting information and analysis.

I see the 7% high ratio mortgages as a catalyst for a substantial market correction. If/when these owners must sell: it will force down resale prices and significantly affect new developments.

patriotz said...

I see the 7% high ratio mortgages as a catalyst for a substantial market correction.

Not 7% high ratio, but 7% subprime, virtually all of which are high ratio I would think.

And all CMHC-insured FTBs are high ratio- that's why they're insured.

DavidL said...

@Patriotz wrote: And all CMHC-insured FTBs are high ratio- that's why they're insured.

Yup, my bad with the terminology. Thanks for correcting me.

omc said...

Marko,

That isn't really my market; the basement suite specials. I actually didn't even look at it, but a friend did. They were shocked. I have been watching the market for some time and have a good idea what a gordon head box, fixed up with a basement suite is worth. I could go through my pcs and pick out many that have sold in the last few months for about that price. They are all bigger, with full height basements.

From many years in the trades, I would take an ugly 70s house over one of those 40s shacks any day. That house is only 1000sqft and I bet you any money they haven't done the drain tiles or any of the other work that needs to be done.

omc said...

How high was the basement Marko? And not the highest spot please, the lowest is what counts.

omc said...

One I know that sold was 4362 ELNIDO CRES. I am only using this as an example as it is by a fiends house, and know the house. This also sold before the market cooled further.

Just Jack said...

The mortgages may not have started out as high ratio loans.

But, home owner's have been encouraged by the banks to use their homes as an ATM machine for impulse purchases such as holidays, boats, cars, second homes or starting up a second business cleaning cat teeth.

It only takes market appreciation to slow or interest rates to remain flat or trickle upwards before the home owner finds their equity is gone, and the mortgage has now been extended to 35 years. All options are now gone to the home owner and fate is about to take its toll.

All that is needed is a life event to occur to put the home owner into a court ordered sale. An injury, divorce, death in the family, or even the loss of a tenant.

High ratio purchasers are just a step or two closer than those that are using their home as a credit card. And we are now seeing the affect of court ordered sales in the marketplace. In a robust market these properties rarely went to the point of becoming court ordered and when they did, they sold at or very close to full market value. Now with the dropping sales volume, these court sales are selling at a discount from market value.

Eventually, the amount of homes under duress will reach a point that these sales set the new market level. As those not under duress are forced to compete with court ordered, divorce, estate, and relocation or face not selling their home. When you have 10 months or more of inventory and 90 or more days-on- market, then the only properties that are selling will be the ones under duress.

The longer this market remains stalled with low sale volumes, the more the likely hood of a meltdown becomes.

But if you have reached the point in your life to purchase, I would keep your payments affordable and the length of your mortgage short and no less that a 20 percent down payment.

Or have a 20 percent down payment and another reserve of 20 percent in near cash investments. You'll still lose money - but probably not the house to a court ordered sale.

DavidL said...

713/715 Stancombe Place (MLS® 280491) sold as part of a court ordered sale. Asking price was $499K, selling price was $425. Apparently it sold on Sept. 8th, but was just updated in PCS today.

More sales like this are bound to drop house prices ...

Sweetrealtor said...

12 sales today by noon and all are under 550K. I'm not making any "rosy" predictions like those in the Times Columnist today but this is good to see.

DavidL said...

Rosy outlook for Victoria real estate
Despite a recent cooling trend, report sees strong market in 2011

PainInThe said...

Basement suites are WORTHLESS in Broadmead. Your neighbors WILL report you, you WILL have a lawsuit, and you could lose your house. Many of the houses there are sold at losses, some huge, when the owners, thinking they would have rental income, have it yanked away. Before considering anything in Broadmead, google and read the covenants. They are NOT kidding. If you google further you'll find several lawsuits a year for everything from unapproved sheds to parking issues, and of course, illegal suites of ANY KIND.

Marko said...

"Basement suites are WORTHLESS in Broadmead."

Who said anything about a suite in broadmead?

PainInThe said...

OMC at 9:43 AM OCT 6

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